Oil hovers above 6-week low as China readies crude reserve release

[NEW YORK] Oil prices rose slightly on Thursday (Nov 18) after dropping to 6-week lows as investors wondered about how much crude major economies would release from their strategic reserves and how much that would ease global crude demand pressures.

Prices fell to 6-week lows early in the session as China said it was moving to tap reserves. On Wednesday (Nov 17), Reuters reported that the US was asking large consuming nations to consider a stockpile release to lower prices.

Washington's bid to cool markets, asking China to join a coordinated action for the first time, comes as high gasoline prices and other inflationary pressures have sparked a political backlash.

"Japan and South Korea have shown resistance to releasing reserves, so we're coming back up a little bit," said Phil Flynn, Senior Analyst at Price Futures Group in Chicago.

"The market is going to continue to be nervous, because it is on guard from a release."

Brent crude settled up 96 US cents, or 1.2 per cent, at US$81.24 a barrel. The session low of US$79.28 was the lowest since Oct 7.

US West Texas Intermediate crude futures closed 65 US cents, or 0.8 per cent, higher at US$79.01 a barrel. It also fell during the session to the lowest since early last month at US$77.08.

A release, even if only from the US and China, will likely drive prices lower at least temporarily.

In October, prices hit 7-year highs as the market focused on the swift rebound in demand as more people received Covid-19 vaccinations and lockdowns were lifted.

Prices rallied as demand rose and the Organization of the Petroleum Exporting Countries and its allies, called Opec+, decided to raise output only slowly.

The International Energy Agency and Opec have said more supply will be available in coming months, but Washington has pressed for a speedier pace.

The proposed release of reserves represents an unprecedented challenge to Opec, because it involves top importer China.

China's state reserve bureau said it was working on a release of crude reserves although it declined to comment on the US request.

A Japanese industry ministry official said the US had requested Tokyo's cooperation in dealing with higher oil prices. but that Japan by law cannot use reserve releases to lower prices.

A South Korean official said it was reviewing the US request for Seoul to release some oil reserves, but added it could only release crude in case of a supply imbalance.

REUTERS